Rising repatriation

As worrying as the recent decline in gross foreign direct investment is the increasing pace of disinvestment

About a fortnight ago, this newspaper reported that as many as 46 proposals for foreign direct investment (FDI) were pending with about 17 departments of the Union government for more than 12 weeks, which was the time limit set for clearing such applications. The Department for Promotion of Industry and Internal Trade, or DPIIT, was understandably concerned and wrote to all the departments, asking them to expedite the clearance of these applications. Significantly, these delays took place in many cases despite the Union home ministry having accorded them the mandatory security clearance.

Could this have been one of the reasons for a slowdown in India's gross FDI inflows in the last few months? While it is true that global FDI has been slowing in general, the fall in India's gross FDI inflows was quite sharp at 16 per cent to $71 billion in 2022-23.

Remember that this was the first time in nine years that a decline had taken place in India's gross FDI flows.

Worryingly, the declining trend continued during the first eleven months of 2023-24, even though the pace of decline had slowed considerably. Gross FDI flows in the AprilFebruary period of 2023-24 fell by 2.7 per cent to $65 billion. The data for the full year is not yet available.

How serious is this decline? The Narendra Modi government would argue that of the 10 years of its regime, each of the first eight years saw gross FDI flows rise, and a decline in the remaining two years should be attributed to hardening interest rates in developed markets and global economic problems affecting FDI flows in most countries.

But that explanation appears to be missing a larger problem afflicting India's FDI flows. What is happening to repatriation or disinvestment by existing foreign direct investors in the country could point to a more serious problem.